Paying Orthopedic Doctors for 'Episodes of Care'

Horizon pioneers program that would bundle fees for joint replacements

New Jersey is piloting the way doctors get paid for hip and knee replacement surgery by looking to pay a single, bundled fee for an "episode of care." Surgical groups are participating in the program to help insurers determine the costs beyond the operating room for such procedures.

In the orthopedic pilot, surgeons are directing their patients' entire care, typically 90 days from pre-admission prep, to surgery, to recovery. The full cost of the three-month hip or knee replacement episode varies widely, depending on the health of the patient, and whether there are complications that require further medical care or readmission to the hospital, and where rehab takes place.

The program launched in January 2011 by Horizon Healthcare Innovations (HHI), in collaboration with five New Jersey orthopedic practices. HHI, a subsidiary of Horizon Blue Cross Blue Shield of New Jersey, will announce today three more practices that have signed on.

The pilot is amassing data from hundreds of cases to help gauge what the total joint replacement "budget" ought to be for a particular patient. If the pilot succeeds, surgeons would receive a bundled payment to manage the entire joint replacement episode, not just the time they spend in the operating room.

"What we have done is looked at patients to see how they did," said Dr. Scott Schoifet, an orthopedic surgeon in Lumberton. "How long were they in the hospital? What was the cost of the implants and the hospital care? If they went to a rehab center, how much physical therapy did they get?"

Dr. Richard Popiel, president of HHI, explained it might take until 2013 or 2014 to create the episode payment model because of the complexities involved in paying surgeons a bundled fee for hip or knee replacement.

When HHI was founded two years ago, one goal was avoiding the mistakes that health insurers made in the 1990s when HMOs were first introduced and health plans pushed the provider community too quickly to assume risk they were not ready for, Popiel said.

"We really want to understand what is in the control of an orthopedic surgeon before we say 'we will put this financial risk for the technical work you do in play.' We want to be able to say, 'If you do X, Y and Z you will be really successful.' We want to know that before we actually switch to risk," he said.

The pilot has been gathering data on hundreds of joint replacement cases, using analytical tools to estimate how much the episode might be expected to cost, and then comparing those projections with actual experience.

About 100 surgeries performed last year are now complete, the medical claims data is in, and the results being studied. Eventually there will be hundreds of cases, generating a considerable database of how best to manage episodes of care.

"You really have to understand all of the components of this episode and where there are levers for the provider to push or pull to get the better quality results and the better cost results," Popiel said. "And if we move too quickly, this won't succeed. So we are trying to be very prudent in how we move this forward."

HHI is also working with the Health Care Incentives Institute (HCII), a nonprofit consultant with expertise in pay for performance medical reimbursement. HCII is helping create a budget for each joint replacement that takes into consideration the medical condition of the patient, a process known as severity adjustment modeling.

Francois de Brantes, executive director of Newtown, Conn-based HCII, explained that on average nationwide, an entire joint replacement episode of care costs $27,000, of which the surgeon's fee accounts for between $2,000 and $2,500. Other costs include the artificial knee or hip device and the hospital stay, which may be followed by more than a week in a rehabilitation hospital. If the patient goes straight home after surgery, a visiting nurse and physical therapist may come to the home.

But when taking the patient's condition into account, the total cost of the episodes may be higher or lower than that $27,000 average, De Brantes said. "If the patient is older and has degenerative osteoarthritis in the knee, that patient is going to need a fair amount of rehab as a result of the procedure. That patient will require a higher intensity of care than someone who is in incredibly good shape and might just have a busted knee from an accident."

Because of the collaborative nature of the project, the surgeons see what their colleague are doing, and discuss best practices. Some surgeons might send all their patients to a rehab facility after surgery, and others might send most patients straight home. The pilot looks at how well these patients are doing to determine if lower cost care at home, with a visiting nurse and physical therapist, might not in some cases be more effective than a rehab facility.

"The cost difference among surgeons was enormous over the entire episode," said Schoifet, who is part of a large orthopedic practice, Reconstructive Orthopedics. "It may have cost $17,000 for an entire cost of care for one surgeon doing a hip or knee and $25,000 for another."

It is important that the severity of the case be taken into consideration when setting the budget for the episode of care, Schoifet said. "Because if you don't do that, and you are going to pay surgeons on a set bundled payment, and you don't take into account their severity of illness, then doctors are only going to want to operate on healthy people."

Bundled payment reimbursements have been piloted several times since the late 1960s, and have been revived in recent years by Medicare and commercial payers striving to rein in the skyrocketing cost of healthcare, De Brantes said. Since 2010 Medicare has been conducting a bundled payment pilot for acute care episodes, which includes orthopedics.

The HHI pilot "is the broadest one that any health plan has attempted to date," De Brantes said. Having five, and soon to be eight "surgical groups across the entire state firmly engaged in the process, this is the broadest [pilot] in terms of its scope in the country."